Supreme Court of India
VISHNU (DEAD) BY L.RSversusSTATE OF MAHARASHTRA AND OTHERS
- Citation
- 2013 INSC 671
- Decided
- 4 October 2013
- Disposal
- Dismissed
- Bench
- G S SINGHVI
Holding
Clause 30 of the B‑1 Agreements is not an arbitration clause; the Superintending Engineer’s decision is a departmental dispute‑resolution mechanism, not an arbitral award.
Summary
The appellant, a contractor, entered into five irrigation contracts with the State of Maharashtra in 1983. After abandoning the work in 1985, he sought damages and later invoked Clause 30 of the contracts, claiming it was an arbitration clause that made the Superintending Engineer’s decision binding as an arbitral award. The trial court treated Clause 30 as an arbitration clause and appointed the Chief Engineer as arbitrator; the High Court reversed, holding the clause was not an arbitration provision. On appeal, the Supreme Court examined the language of Clauses 29 and 30, distinguishing a departmental dispute‑resolution mechanism from arbitration, noting the risk of bias if the Superintending Engineer were to act as arbitrator. Relying on earlier precedents, the Court held that Clause 30 did not create an arbitration agreement and the trial court’s appointment of an arbitrator was erroneous. The appeals were dismissed.
Issues considered
- Whether Clause 30 of the B‑1 Agreements constitutes an arbitration clause under the Arbitration Act, 1940.
- Whether the decision of the Superintending Engineer can be treated as an arbitral award.
- Whether the Superintending Engineer can act as an arbitrator given the potential for bias and lack of impartiality.
- How to distinguish between expert determination/departmental dispute‑resolution and arbitration in contract clauses.
Legislation cited
- Arbitration Act, 1940s. 20, s. 21
- Code of Civil Procedure, 1908s. 17, s. 20, s. 21, s. 80
Subjects
Arbitration clauseExpert determinationSuperintending EngineerDepartmental dispute resolutionBias in adjudicationConstruction contractIrrigation projectArbitration Act 1940Contract interpretation
Judgment
(2013] 11 S.C.R. 340
A VISHNU (DEAD) BY L.RS
v.
STATE OF MAHARASHTRA AND OTHERS
(Civil Appeal No. 3680 of 2005)
B OCTOBER 4, 2013
[G.S. SINGHVI, V. GOPALA GOWDA AND
C. NAGAPPAN, JJ.]
Arbitration - Irrigation project - Agreement with State
C Government - Clause in the agreement - Nature of -
Distinction between expert determination and arbitration -
Tender submitted by appellant for irrigation project accepted
by respondent-State Government - Parties entered into
agreement - Disputes arose from execution of the project -
D Clause 30 of the agreement - If contemplated arbitration and
could be construed as an arbitration clause - Plea of appellant
that Clause ·30 of the agreement made the decision of the
Superintending Engineer binding on all parties to the
agreement and, therefore, the trial Court was right in treating
E the same as an arbitration clause - Held: Nothing in the
language of Clause 30 from which it can be inferred that the
parties had agreed to confer the role of arbitrator upon the
Superintending Engineer of the Circle - Power conferred
upon the Superintending Engineer of. the Circle was in the
F nature of a departmental dispute resolution mechanism -
Supervisory control was given to the Superintending Engineer
for smooth execution of the works in accordance with the
approved designs and specifications and also to ensure that
quality of work was not compromised - Further, inherent
H danger in treating the Superintending Engineer as an
Arbitrator - Task of deciding the dispute could not have been
assigned to the Superintending Engineer as he could not be
expected to make adjudication with an un-biased mind -
Even if he may not be actually biased, the contractor will
340
VISHNU (DEAD) BY L.RS. v. STATE OF 341
MAHARASHTRA
always have a lurking apprehension that his decision will not A
be free from bias - High Court rightly held that Clause 30 of
the agreement was not an Arbitration agreement - Contract.
The tenders submitted by the appellant for an
irrigation project were accepted by the Competent B
Authority and agreements were executed between the
parties on 19.5.1983 and 5.10.1983 ('B-1 Agreements'). In
January 1985, the appellant abandoned the works and
claimed damages in lieu of the alleged loss suffered by
him. Subsequently, the appellant also filed application C
under Section 20 of the Arbitration Act, 1940 for
settlement of accounts and prayed that respondent Nos.3
and 4 be directed to file Arbitration Agreement in terms
of Clause 30 of B-1 Agreement executed between the
parties and an Arbitrator be appointed to decide all the
disputes. The trial Court allowed the application and D
declared that Clause 30 of B-1 Agreement is an arbitration
clause. The trial Court also appointed the Chief Engineer
(PWD) as an Arbitrator and referred all the disputes to
him. Revision Application filed by the respondents was
allowed by the Single Judge of the High Court which held E
that Clause 30 of B-1 Agreement cannot be treated as an
arbitration clause.
The appellant contended before this Court that the
impugned order was liable to be set aside because the F
High Court's interpretation of Clause 30 of B-1
Agreement was erroneous. It was emphasized that
Clause 30 of B-1 Agreement made the decision of the
Superintending Engineer binding on all parties to the
agreement and, therefore, the trial Court was right in G
treating the same as an arbitration clause.
Dismissing the appeals, the Court
HELD: 1.1. A conjoint reading of Clauses 29 and 30
of the B-1 Agreements entered into between the parties H
342 SUPREME COURT REPORTS [2013] 11 S.C.R.
A shows that the appellant had to execute all works subject
to the approval in all respects of Superintending Engineer
of the Circle, who could issue directions from time to time
about the manner in which work was to commence and
execute. By virtue of Clause 30, decision of the
B Superintending Engineer of the Circle was made final,
conclusive and binding on all the parties in respect of all
questions relating to the meaning of the specifications,
designs, drawings, quality of workmanship or materials
used on the work or any other question relating to claim,
c right, matter or things arising out of or relating to the
contract designs, drawings, specifications, estimates,
instructions, orders, etc. These two clauses by which the
Superintending Engineer was given over all supervisory
control were incorporated for smooth execution of the
works in accordance with the approved designs and
0
specifications and also to ensure that quality of work is
not compromised. The power conferred upon the
Superintending Engineer of the Circle was in the nature
of a departmental dispute resolution mechanism and was
meant for expeditious sorting out of problems which
E could crop up during execution of the work. Since the
Superintending Engineer was made overall in-charge of
all works to be executed under the contract, he was
considered by the parties to be the best person who
could provide immediate resolution of any controversy
F relating to specifications, designs, drawings, quality of
workmanship or material used, etc. It was felt that if all
this was left to be decided by the regular civil Courts, the
object of expeditious execution of work of the project
would be frustrated. This is the primary reason why the
G Superintending Engineer of the Circle was entrusted with
the task of taking decision on various matters. However,
there is nothing in the language of Clause 30 from which
it can be inferred that the parties had agreed to confer the
role of arbitrator upon the Superintending Engineer of the ·
H Circle. [Para 17) [349-G-H; 350-A-F]
VISHNU (DEAD) BY L.RS. v. STATE OF 343
MAHARASHTRA
1.2. Further, in terms of Clause 29 of B-1 Agreement, A
the Superintending Engineer of the Circle was invested
with the authority to approve all works to be executed
under the contract. In other words, the Superintending
Engineer was to supervise execution of all works. The
power conferred upon him to take decision on the B
matters enumerated in Clause 30 did not involve
adjudication of any dispute or lis between the State
Government and the contractor. It would have been
extremely anomalous to appoint him as Arbitrator to
decide any dispute or difference between the parties and c.
pass an award. How could he pass an award on any of
the issues already decided by him under Clause 30?
Suppose, he was to decline approval to the designs,
drawings etc. or was to object to the quality of materials
etc. and the contractor had a grievance against his D
decision, the task of deciding the dispute could not have
been assigned to the Superintending Engineer. He could
not be expected to make adjudication with an un-biased
mind. Even if he may not be actually biased, the
contractor will always have a lurking apprehension that
his decision will not be free from bias. Therefore, there E
is an inherent danger in treating the Superintending
Engineer as an Arbitrator. [Para 26] [361-H; 362-A-D]
1.3. The High Court had rightly held that Clause 30
of B-1 Agreement is not an Arbitration Agreement and the F
trial Court was not right in appointing the Chief Engineer
as an Arbitrator. [Para 31] [370-C]
Mallikarjun v. Gu/barga University (2004) 1 SCC 372:
2003 (5) Suppl. SCR 272 and Punjab State v. Dina Nath G
(2007) 5 SCC 28: 2007 (6) SCR 536 - distinguished.
State of U.P. v. Tipper Chand (1980) 2 SCC 341; State
of Maharashtra v. Mis Ranjeet Construction [Decision of
Supreme Court in C.A. No.4700/1985]; State of Orissa v.
H
344 SUPREME COURT REPORTS [2013] 11 S.C.R.
A Damodar Das (1996) 2 SCC 216: 1995 (6) Suppl. SCR 800;
Bharat Bhushan Bansal v. U.P. Small Industries Corporation
Ltd., Kanpur (1999) 2 SCC 166: 1999 (1) SCR 181; K.K.
Modi v. K.N. Modi (1998) 3 SCC 573: 1998 (1) SCR 601 and
Bihar State Mineral Development Corporation and another v.
B Encon Builders (l)(P) Limited (2003) 7 SCC 418: 2003 (2)
Suppl. SCR 812 - relied on.
Russell on Arbitration, 21st Edn. - referred to.
Case Law Reference:
c 2003 (5) Suppl. SCR 272 distinguished Para 13
2007 (6) SCR 536 distinguished Para 13
(1980) 2 sec 341 relied on Para 14
D 1995 (6) Suppl. SCR 800 relied on Para 14
1999 (1) SCR 181 relied on Para 22
1998 (1) SCR 601 relied on Para 24
E 2003 (2) Suppl. SCR 812 relied on Para 26
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3680 of 2005.
From the Judgment & Order dated 06.05.2004 of the High
F Court of Judicature at Bombay Bench at Aurangabad in Civil
Revision Application No. 447 of 1997.
WITH
C.A. No. 3681 of 2005.
G
Rana Mukherjee, Anjul Dwivedi, Baisy Mannah for the
Appellant.
Manish Pitale for the Respondents.
H The Judgment of the Court was delivered by
VISHNU (DEAD) BY L.RS. v. STATE OF 345
MAHARASHTRA
G.S. SINGHVI, J. 1. Whether Clause 30 of B-1 Agreements A
entered into between the Government of Maharashtra and the
appellant is in the nature of an arbitration clause is the question
which arises for consideration in this appeal filed against
judgment dated 6.5.2004 of the learned Single Judge of the
Bombay High Court, Aurangabad Bench. B
2. The tenders submitted by the appellant, who is now
represented by his legal representatives, for Tondapur Medium
Project, Jalgaon Medium Project Division, Jalgaon and Hatnoor
Canal Division No.3, Chopda, District Jalgaon were accepted C
by the Competent Authority and five agreements were executed
between the parties on 19.5.1983 and 5.10.1983 (hereinafter
referred to as 'B-1 Agreements').
3. In January 1985, the appellant abandoned the works and
submitted bills for the works already done. He also claimed D
damages in lieu of the alleged loss suffered by him.
4. After four years, the appellant served notice under
Section 80 CPC and then filed Civil Suit No.995/1989 before
the trial Court for declaring the recovery proceedings initiated E
by the defendants as illegal, null and void.
5. During the pendency of the suit, the appellant filed an
application under Section 21 of the Arbitration Act, 1940 (for
short, 'the 1940 Act') and prayed that the matter may be
referred to an Arbitrator by appointing the Superintending F
Engineer or any other Arbitrator as the sole Arbitrator in terms
of Clause 30 of B-1 Agreement. The same was dismissed by
the trial Court vide order dated 29.7.1994 on the ground that
both the parties had not given consent for making a reference
to an Arbitrator. G
6. Soon thereafter, the appellant filed an application under
Order VI Rule 17 CPC for leave to amend the plaint and
incorporate an additional prayer for reference of the dispute to
H
346 SUPREME COURT REPORTS [2013] 11 S.C.R.
A an Arbitrator. The same was allowed by the trial Court vide
order dated 27.9.1994.
7. The respondents challenged the aforesaid order in Civil
Revision Application No.153/1995, which was partly allowed by
B the learned Single Judge of the High Court and the order of
the trial Court granting leave to the appellant to amend the
prayer clause was set aside.
8. In the meanwhile, the appellant filed application dated
3.2.1995 under Section 20 of the 1940 Act for settlement of
C accounts and prayed that respondent Nos.3 and 4 may be
directed to file Arbitration Agreement in terms of Clause 30 of
8-1 Agreement executed between the parties and an Arbitrator
may be appointed to decide all the disputes. On 17.6.1995, the
trial Court directed the parties to adduce evidence on the nature
D of Clause 30 of 8-1 Agreement.
9. After considering the evidence adduced by the parties
and by placing reliance on some judgments of the High Courts,
the trial Court allowed the application and declared that Clause
E 30 of 8-1 Agreement is an arbitration clause. The trial Court
also appointed Shri D.G. Marathe, Chief Engineer (PWD) as
an Arbitrator and referred all the disputes to him.
10. Civil Revision Application No.447 of 1997 filed by the
respondents against the order of the trial Court was allowed
F by the learned Single Judge of the Bombay High Court and it
was held that Clause 30 of 8-1 Agreement cannot be treated
as an arbitration clause. In support of this conclusion, the High
Court relied upon the judgment of this Court in Civil Appeal No.
4700/1985 - State of Maharashtra v. Mis. Ranjeet
G Construction.
11. While issuing notice of the special leave petition on
4.1.2005, this Court passed the following order:
"The learned counsel for the petitioner places reliances on
H
VISHNU (DEAD) BY L.RS. v. STATE OF 347
· MAHARASHTRA [G.S. SINGHVI, J.]
a three Judge Bench decision of this Court in Mallikarjun A
Vs. Gulbarga University 2004 (1) SCC, 372 wherein a
similar clause, as arises for consideration in the present
case, was held to be an arbitration clause.
The abovesaid decision seems to be at divergence from B
the view taken by a two Judge Bench decision in Bharat
Bhushan Bansal Vs. U.P. Small Industries Corporation
Ltd., Kanpur 1999 (2) SCC, 166 wherein reliance has
been placed on two judgments, of this Court, each by three
Judges, namely, State ofOrissa Vs. Damodar Oas 1996
(2) SCC, 216 and State of U.P. Vs. Tipper Chand 1980(2) C
sec, 341.
Issue notice to the respondents and place for hearing
before a three Judge Bench.
D
Issue notice also on the prayer for grant of interim relief."
12. By an order dated 11.07.2005, the three-Judge Bench
referred the matter to the Constitution Bench for resolving the
conflicting opinions expressed by the co-ordinate Benches.
However, vide order dated 8.12.2010, the Constitution Bench E
declined to decide the matter and directed that the case be
listed before the three Judge Bench.
13. Shri Rana Mukherjee, learned counsel for the appellant
argued that the impugned order is liable to be set aside F
because the High Court's interpretation of Clause 30 of B-1
Agreement is contrary to the law laid down in Mallikarjun v.
Gulbarga University (2004) 1 SCC 372 and Punjab State v.
Dina Nath (2007) 5 sec 28. Learned counsel emphasized that
Clause 30 of B-1 Agreement makes the decision of the G
Superintending Engineer binding on all parties to the agreement
and, therefore, the trial Court was right in treating the same as
an arbitration clause. Shri Mukherjee further argued that in view
of circulars dated 9.5.1977, 12.8.1982 and 21.5.1983 issued
by the State Government, Clause 30 of B-1 Agreements has H
348 SUPREME COURT REPORTS (2013] 11 S.C.R.
A to be treated as an arbitration clause and the respondents had
no right to challenge the reference made by the trial Court and
thereby question the wisdom of the State Government.
14. Shri Manish Pitale, learned counsel for the respondents
relied upon the judgments of this Court in State of U.P. v. Tipper
8
Chand (1980) 2 SCC 341, State of Orissa v. Damodar Das
(1996) 2 SCC 216 and Bharat Bhushan Bansal v. U.P. Small
Industries Corporation Ltd., Kanpur (1999) 2 SCC 166 and
argued that Clause 30 of 8-1 Agreement cannot be construed
as an arbitration clause simply because the decision of the
C Superintending Engineer is made binding on all parties to the
contract. Learned counsel submitted that the judgment in
Mal/ikarjun v. Gulbarga University (supra) is clearly
distinguishable because Clause 30 of the Agreement, which
was interpreted in that case was substantially different from the
D one under consideration. Shri Pitale pointed out that the
Superintending Engineer of Gulbarga Circle was not directly
involved in the execution of contract between the University and
the appellant, whereas Superintending Engineer, who has been
named as the officer in Clause 30 of 8-1 Agreement entered
E into between the appellant and the State Government is overall
incharge of the work.
15. We have considered the respective arguments.
Clauses 29 and 30 of the 8-1 Agreement entered into between
F the parties read as under:
"Clause 29.-All works to be executed under the contract
shall be executed under the direction and subject to the
approval in all respects of the Superintending Engineer of
the Circle for the time being, who shall be entitled to direct
G at what point or points and in what manner they are to be
commenced, and from time to time carried on.
Clause 30 -Except where otherwise specified in the
contract and subject to the powers delegated to him by
H Government under the Code rules then in force the
•
VISHNU (DEAD) BY L.RS. v. STATE OF 349
MAHARASHTRA [G.S. SINGHVI, J.]
decision of the Superintending Engineer of the Circle for A
the time being shall be final, conclusive, and binding on
all parties to the contract upon all questions, relating to the
meaning of the specifications, designs, drawings, and
instructions, hereinbefore mentioned and as to the quality
of workmanship, or materials used on the work, or as to B
any other question, claim, right, matter, or thing whatsoever,
if any way arising, out of, or relating to or the contracts
designs, drawings, specifications, estimates, instructions,
orders, or these conditions or otherwise concerning the
works, or the execution, or failure to execute the same, c
whether arising, during the progress of the work, or after
the completion or abandonment thereof."
16. Para 224 of the Maharashtra Public Works Manual, as
amended by Government C.M. No. CAT-1070/460 - DSK.2, D
dt.9/5/1977, reads as under:
"Para 224 - Clause 30 of B-1 and B-2 Agreement forms
lays down that the decision of the Superintending Engineer
in certain matters relating to the contract would be final.
The Superintending Engineer's decision taken under this E
clause should be considered as that taken as an Arbitrator
and this should be considered as the decision taken under
the Arbitration Act. The decisions taken by the
Superintending Engineer under the other clauses should
be considered different from his decision taken under F
clause 30 of B-1 and B-2 tender agreement as an
arbitrator."
17. We shall first consider the question whether Clause 30
of B-1 Agreement can be construed as an arbitration clause.
A conjoint reading of Clauses 29 and 30 of B-1 Agreements G
entered into between the parties shows that the appellant had
to execute all works subject to the approval in all respects of
Superintending Engineer of the Circle, who could issue
directions from time to time about the manner in which work
was to commence and execute. By virtue of Clause 30, decision H
350 SUPREME COURT REPORTS (2013] 11 S.C.R.
A of the Superintending Engineer of the Circle was made final,
conclusive and binding on all the parties in respect of all
questions relating to the meaning of the specifications, designs,
drawings, quality of workmanship or materials used on the work
or any other question relating to claim, right, matter or things
B arising out of or relating to the contract designs, drawings,
specifications, estimates, instructions, orders, etc. These two
clauses by which the Superintending Engineer was given over
all supervisory control were incorporated for smooth execution
of the works in accordance with the approved designs and
c specifications and also to ensure that quality of work is not
compromised. The power conferred upon the Superintending
Engineer of the Circle was in the nature of a departmental
dispute resolution mechanism and was meant for expeditious
sorting out of problems which could crop up during execution
of the work. Since the Superintending Engineer was made
0
overall in-charge of all works to be executed under the contract,
he was considered by the parties to be the best person who
could provide immediate resolution of any controversy relating
to specifications, designs, drawings, quality of workmanship or
material used, etc. It was felt that if all this was left to be decided
E by the regular civil Courts, the object of expeditious execution
of work of the project would be frustrated. This is the primary
reason why the Superintending Engineer of the Circle was
entrusted with the task of taking decision on various matters.
However, there is nothing in the language of Clause 30 from
F which it can be inferred that the parties had agreed to confer
the role of arbitrator upon the Superintending Engineer of the
Circle.
18. In Russell on Arbitration, 21st Edn., the distinction
G between an expert determination and arbitration has been spelt
out in the following words:
"Many cases have been fought over whether a contract's
chosen form of dispute resolution is expert determination
or arbitration. This is a matter of construction of the
H
VISHNU (DEAD) BY L.RS. v. STATE OF 351
MAHARASHTRA [G.S. SINGHVI, J.]
contract, which involves an objective enquiry into the A
intentions of the parties. First, there are the express words
of the disputes clause. If specific words such as 'arbitrator',
'arbitral tribunal', 'arbitration' or the formula 'as an expert
and not as an arbitrator' are used to describe the manner
in which the dispute resolver is to act, they are likely to be B
persuasive although not always conclusive .... Where there
is no express wording, the court will refer to certain
guidelines. Of these, the most important used to be,
whether there was an 'issue' between the parties such as
the value of an asset on which they had not taken defined c ·
positions, in which case the procedure was held to be
expert determination; or a 'formulated dispute' between the
parties where defined positions had been taken, in which
case the procedure was held to be an arbitration. This
imprecise concept is still being relied on. It is D
unsatisfactory because some parties to contract
deliberately choose expert determination for dispute
resolution. The next guideline is the judicial function of an
arbitral tribunal as opposed to the expertise of the expert;
.... An arbitral tribunal arrives at its decision on the
evidence and submissions of the parties and must apply E
the law or if the parties agree, on other consideration; an
expert, unless it is agreed otherwise, makes his own
enquiries, applies his own expertise and decides on his
own expert opinion .... "
F
19. A clause substantially similar to Clause 30 of B-1
Agreement was interpreted by a three Judge Bench in State
of U.P v. Tipper Chand (supra) and it was held that the same
cannot be construed as an arbitration clause. Paragraphs 2
and 3 of the judgment which contain the reasons for the· G
aforesaid conclusion are reproduced below:
"2. The suit out of which this appeal has arisen was filed
by the respondent before us for recovery of Rs. 2000 on
account of dues recoverable from the Irrigation
H
352 SUPREME COURT REPORTS [2013] 11 S.C.R.
A Department of the petitioner State for work done by the
plaintiff in pursuance of an agreement, clause 22 of which
runs thus:
"Except where otherwise specified in the contract
the decision of the Superintending Engineer for the
B
time being shall be final, conclusive and binding on
all parties to the contract upon all questions relating
to the meaning of the specifications, design,
drawing and instructions hereinbefore mentioned.
The decision of such Engineer as to the quality of
c workmanship, or materials used on the work, or as
to any other question, claim, right, matter or things
whatsoever, in any way arising out of or relating to
the contract, designs, drawing specifications,
estimates, instructions, orders, or these conditions,
D or otherwise concerning the works, or the execution
or failure to execute the same, whether arising
during the progress of the work, or after the
completion or abandonment of the contract by the
contractor, shall also be final, conclusive and
E binding on the contractor."
3. After perusing the contents of the said clause and
hearing learned Counsel for the parties we find ourselves
in complete agreement with the view taken by the High
F Court. Admittedly the clause does not contain any express
arbitration agreement. Nor can such an agreement be
spelled out from its terms by implication, there being no
mention in it of any dispute, much less of a reference
thereof. On the other hand, the purpose of the clause
clearly appears to be to vest the Superintending Engineer
G
with supervision of the execution of the work and
administrative control over it from time to time."
20. In State of Maharashtra v. Mis. Ranjeet Construction
(supra), the two Judge Bench of this Court interpreted Clause
H 30 of the agreement entered into between the parties, which
VISHNU (DEAD) BY L.RS. v. STATE OF 353
MAHARASHTRA [G.S. SINGHVI, J.]
is almost identical to the clause under consideration, relied upon A
the judgment in State of U.P. v. Tipper Chand (supra) and held
that Clause 30 cannot be relied upon for seeking a reference
to an Arbitrator of any dispute arising under the contract.
21. In State of Orissa v. Damodar Das (supra), the three B
Judge Bench interpreted Clause 21 of the contract entered into
between the appellant and the respondent for construction of
sump and pump chamber etc. for pipes W/S to Village Kentile.
The respondent abandoned the work before completion of the
project and accepted payment of the fourth running bill. C
Subsequently, he raised dispute and sent communication to the
Chief Engineer, Public Health, Orissa for making a reference
to an Arbitrator. The Subordinate Judge, Bhubaneswar allowed
the application filed by the respondent under Section 8 of the
1940 Act and the order passed by him was upheld by the High
Court. This Court referred to Clause 25 of the agreement, relied D
upon the judgment in State of U.P. v. Tipper Chand (supra) and
held that the said clause cannot be interpreted as providing
resolution of dispute by an Arbitrator. Paragraphs 9 and 10 of
the judgment, which contain discussion on the subject, are
extracted below: E
"9. The question, therefore, is whether there is any
arbitration agreement for the resolution of the disputes. The
agreement reads thus:
"25. Decision of Public Health Engineer to be F
final.- Except where otherwise specified in this
contract, the decision of the Public Health Engineer
for the time being shall be final, conclusive and
binding on all parties to the contract upon all
questions relating to the meaning of the G
specifications; drawings and instructions
hereinbefore mentioned and as to the quality of
workmanship or materials used on the work, or as
to any other question, claim, right, matter or thing,
whatsoever in any way arising out of, or relating to, H
354 SUPREME COURT REPORTS [2013] 11 S.C.R.
A the contract, drawings, specifications, estimates,
instructions, orders or these conditions, or otherwise
concerning the works or the execution or failure to
execute the same, whether arising during the
progress of the work or after the completion or the
B sooner determination thereof of the contract."
10. Section 2(a) of the Act defines "arbitration agreement"
to mean "a written agreement to submit present or future
differences to arbitration, whether an arbitrator is named
therein or not". Indisputably, there is no recital in the above
c clause of the contract to refer any dispute or difference
present or future to arbitration. The learned counsel for the
respondent sought to contend from the marginal note, viz.,·
"the decision of Public Health Engineer to be final" and any
other the words "claim, right, matter or thing, whatsoever
D in any way arising out of the contract, drawings,
specifications, estimates, instructions, orders or these
conditions, or otherwise concerning the works or the
execution or failure to execute the same, whether arising
during the progress of the work or after the completion or
E the sooner determination thereof of the contract" and
contended that this clause is wide enough to encompass
within its ambit, any disputes or differences arising in the
aforesaid execution of the contract or any question or claim
or right arising under the contract during the progress of
F the work or after the completion or sooner determination
thereof for reference to an arbitration. The High Court,
therefore, was right in its conclusion that the aforesaid
clause gives right to arbitration to the respondent for
resolution of the dispute/claims raised by the respondent.
In support thereof he relied on Ram Lal Jagan Nath v.
G
Punjab State through Collector AIR 1966 Punj 436. It is
further contended that for the decision of the Public Health
Engineer to be final, the contractor must be given an
opportunity to submit his case to be heard either in person
or through counsel. and a decision thereon should be giv~n.
H
VISHNU (DEAD) BY L.RS. v. STATE OF 355
MAHARASHTRA [G.S. SINGHVI, J.]
It envisages by implication existence of a dispute between A
the contractor and the Department. In other words, the
parties construed that the Public Health Engineer should
be the sole arbitrator. When the claim was made in
referring the dispute to him, it was not referred to the court.
The respondent is entitled to avail of the remedy under B
Sections 8 and 20 of the Act. We find it difficult to give
acceptance to the contention. A reading of the above
clause in the contract as a conjoint whole, would give us
an indication that during the progress of the work or after
the completion or the sooner determination thereof of the c
contract, the Public Health Engineer has been empowered
to decide all questions relating to the meaning of the
specifications. drawings. instructions hereinbefore
mentioned and as to the quality of workmanship or material
used on the work or as to any other question. claim. right. D
matter or thing whatsoever in any way arising out of. or
relating to. the contract drawings. specifications. estimates,
instructions. orders or those conditions or otherwise
concerning the works or the execution or failure to execute
the same has been entrusted to the Public Health Engineer E
and his decision shall be final. In other words. he is
nominated only to decide the questions arising in the quality
of the work or any other matters enumerated hereinbefore
and his decision shall be final and bind the contractor. A
clause in the contract cannot be split into two parts so as
to consider one part to give rise to difference or dispute F
and another part relating to execution of work. its
workmanship etc. It is settled now that a clause in the
contract must be read as a whole. If the construction
suggested by the respondent is given effect then the
decision of the Public Health Engineer would become final G
.and it is not even necessary to have it made rule of the court
under the Arbitration Act. It would be hazardous to the claim
of a contractor to give such instruction and give power to
the Public Health Engineer to make any dispute final and
binding on the contractor. A careful reading of the clause H
356 SUPREME COURT REPORTS [2013] 11 S.C.R.
A in the contract would give us an indication that the Public
Health Engineer is empowered to decide all the questions
enumerated therein other than any disputes or differences
that have arisen between the contractor and the
Government. But for clause 25. there is no other contract
B to refer any dispute or difference to an arbitrator named
or otherwise."
(emphasis supplied)
22. In K.K. Modi v. K.N. Modi (1998) 3 SCC 573, this
C Court interpreted Clause 9 of the Memorandum of
Understanding signed by two groups of Modi family. Group 'A'
consisted of Kedar Nath Modi (younger brother of Seth Gujjar
Mal Modi and his three sons) and Group 'B' consisted of five
sons of Seth Gujjar Mal Modi. To resolve the disputes and
D differences between two groups, the financial institutions, which
had lent money, got involved. Ultimately, a Memorandum of
Understanding was signed by the parties on 24.1.1989, Clause
9 of which reads as under:
"Implementation will be done in consultation with the
E
financial institutions. For all disputes, clarifications etc. in
respect of implementation of this agreement, the same
shall be referred to the Chairman, IFCI or his nominees
whose decisions will be final and binding on both the
groups."
F
The Chairman, Industrial Finance Corporation of India
(IFCI) formed a committee of experts to assist him in deciding
various questions. The committee of experts and the Chairman
held discussion with both the groups. On 8.12.1995, the
G Chairman, IFCI gave his detailed report I decision. In his
covering letter, the Chairman indicated that the Memorandum
of Understanding had been substantially implemented during
1989 to 1995 and with his decisions on the disputes I
clarifications given by him, it will be possible to implement the
H remaining part. The report of the Chairman was neither filed in
VISHNU (DEAD) BY L.RS. v. STATE OF 357
MAHARASHTRA [G.S. SINGHVI, J.]
the competent Court as an award nor any application was A
submitted for making the report a rule or. decree of the Court.
However, the Chairman issued series of directions for
implementing the report. On 18.5.1996, the appellants filed a
petition under Section 33 of the 1940 Act in the Delhi High
Court challenging report dated 8.12.1995 by asserting that it B
was an award in arbitration proceedings. The opposite parties
filed civil suit in the High Court to challenge the report of the
Chairman.
23. One of the questions formulated by this Court was C
whether Clause 9 of the Memorandum of Understanding
constituted an Arbitration Agreement and whether the decision
of the Chairman, IFCI constituted an award. The two Judge
Bench first culled out the following attributes of an Arbitration
Agreement:
D
"(1) The arbitration agreement must contemplate that the
decision of the tribunal will be binding on the parties to the
agreement,
(2) that the jurisdiction of the tribunal to decide the rights
E
of parties must derive either from the consent of the parties
or from an order of the court or from a statute, the terms
of which make it clear that the process is to be an
arbitration,
(3) the agreement must contemplate that substantive rights F
of parties will be determined by the agreed tribunal,
(4) that the tribunal will determine the rights of the parties
in an impartial and judicial manner with the tribunal owing
an equal obligation of fairness towards both sides, G,
(5) that the agreement of the parties to refer their disputes
to the decision of the tribunal must be intended to be
enforceable in law and lastly,
(6) the agreement must contemplate that the tribunal will H
358 SUPREME COURT REPORTS (2013] 11 S.C.R.
A make a decision upon a dispute which is already
formulated at the time when a reference is made to the
tribunal.
The other factors which are relevant include, whether the
agreement contemplates that the tribunal will receive
B
evidence from both sides and hear their contentions or at
least give the parties an opportunity to put them forward;
whether the wording of the agreement is consistent or
inconsistent with the view that the process was intended
to be an arbitration, and whether the agreement requires
c the tribunal to decide the dispute according to law."
The Court then referred to several precedents including
English cases and held:
D "In the present case, the Memorandum of Understanding
records the settlement of various disputes as between
Group A and Group B in terms of the Memorandum of
Understanding. It essentially records a settlement arrived
at regarding disputes and differences between the two
groups which belong to the same family. In terms of the
E
settlement, the shares and assets of various companies
are required to be valued in the manner specified in the
agreement. The valuation is to be done by M/s S.B.
Billimoria & Co. Three companies which have to be
divided between the two groups are to be divided in
F accordance with a scheme to be prepared by Bansi S.
Mehta & Co. In the implementation of the Memorandum
of Understanding which is to be done in consultation with
the financial institutions, any disputes or clarifications
relating to implementation are to be referred to the
G Chairman, IFCI or his nominees whose decision will be
final and binding. The purport of clause 9 is to prevent any
further disputes between Groups A and B. Because the
agreement requires division of assets in agreed
proportions after their valuation by a named body and under
H a scheme of division by another named body. Clause 9 is
VISHNU (DEAD) BY L.RS. v. STATE OF 359
MAHARASHTRA [G.S. SINGHVI, J.]
intended to clear any other difficulties which may arise in A
the implementation of the agreement by leaving it to the
decision of the Chairman, IFCI. This clause does not
contemplate any judicial determination by the Chairman of
the IFCI. He is entitled to nominate another person for
deciding any question. His decision has been made final B
and binding. Thus. clause 9 is not intended to be for any
different decision than what is already agreed upon
between the parties to the dispute. It is meant for a proper
implementation of the settlement already arrived at. A
judicial determination. recording of evidence etc. are not c
contemplated. The decision of the Chairman. IFCI is to be
binding on the parties. Moreover. difficulties and disputes
in implementation may not be between the parties to the
Memorandum of Understanding. It is possible that the
valuers nominated in the Memorandum of Understanding D
or the firm entrusted with the responsibility of splitting some
of the companies may require some clarifications or may
find difficulties in doing the work. They can also resort to
clause 9. Looking to the scheme of the Memorandum of
Understanding and the purpose behind clause 9, the
learned Single Judge, in our view. has rightly come to the
E
conclusion that this was not an agreement to refer disputes
to arbitration. It was meant to be an expert's decision. The
Chairman, IFCI has designated his decision as a decision.
He has consulted experts in connection with the valuation
and division of assets. He did not file his decision in court F
nor did any of the parties request him to do so."
(emphasis supplied)
24. In Bharat Bhushan Bansal v. U.P. Small Industries
Corporation Limited, Kanpur (1999) 2 SCC 166, the two G
Judge Bench interpreted Clauses 23 and 24 of the agreement
entered into between the parties for execution of work of
construction of a factory and allied buildings of the respondent
at India Complex, Rai Bareli. Those clauses were as under:
H
360 SUPREME COURT REPORTS [2013) 11 S.C.R.
A "Decision of the Executive Engineer of the UPSIC to be
final on certain matters
23. Except where otherwise specified in the contract, the
decision of the Executive Engineer shall be final, conclusive
and binding on both the parties to the contract on all
B
questions relating to the meaning, the specification, design,
drawings and instructions hereinbefore mentioned, and as
to the quality of workmanship or materials used on the
work or as to any other question whatsoever in any way
arising out of or relating to the designs, drawings,
c specifications, estimates, instructions, orders or otherwise
concerning the works or the execution or failure to execute
the same whether arising during the progress of the work,
or after the completion thereof or abandonment of the
contract by the contractor shall be final and conclusive and
D binding on the contractor.
Decision of the MD of the UPSIC on all other matters shall
' be final
24. Except as provided in clause 23 hereof, the decision
E
of the Managing Director of the UPSIC shall be final,
conclusive and binding on both the parties to the contract
upon all questions relating to any claim, right, matter or thing
in any way arising out of or relating to the contract or these
conditions or concerning abandonment of the contract by
F the contractor and in respect of all other matters arising
out of this contract and not specifically mentioned herein."
It was argued on behalf of the appellant that Clause 24
should be construed as an arbitration clause because the
G decision of the Managing Director was binding on both the
parties. The two Judge Bench analysed Clauses 23 and 24 of
the agreement, referred to the judgment in K.K. Modi v. K.N.
Modi (supra), State of U.P. v. Tipper Chand (supra), State of
Orissa v. Damodar Das (supra) and observed:
H
VISHNU (DEAD) BY L.RS. v. STATE OF 361
MAHARASHTRA [G.S. SINGHVI, J.]
"In the present case, the Managing Director is more in the A
category of an expert who will decide claims, rights, or
matters in any way pertaining to the contract. The intention
appears to be more to avoid disputes than to decide
formulated disputes in a quasi-judicial manner. In para
18.067 of Vol. 2 of Hudson on Building and Engineering B
Contracts. Illustration (8) deals with the case where, by the
terms of a contract, it was provided that the engineer
"shall be the exclusive judge upon all matters relating
to the construction,· incidents, and the C
consequences of these presents, and of the tender,
specifications, schedule and drawings of the
contract, and in regard to the execution of the works
or otherwise arising out of or in connection with the
contract, and also as regards all matters of account,
including the final balance payable to the contractor, D
and the certificate of the engineer for the time being,
given under his hand, shall be binding and
conclusive on both parties."
It was held that this clause was not an arbitration clause E
and that the duties of the Engineer were administrative and
not judicial.
Since clause 24 does not contemplate any arbitration, the
application of the appellant under Section 8 of the
Arbitration Act, 1940 was misconceived. The appeal is, F
therefore, dismissed though for reasons somewhat
different from the reasons given by the High Court. there
will, however, be no order as to costs."
25. The aforesaid judgments fully support the view taken G
by us that Clause 30 of B-1 Agreement is not an arbitration
clause.
26. The issue deserves to be looked into from another
angle. In terms of Clause 29 of B-1 Agreement, the
H
362 SUPREME COURT REPORTS (2013] 11 S.C.R.
A Superintending Engineer of the Circle was invested with the
authority to approve all works to be executed under the contract.
In other words, the Superintending Engineer was to supervise
execution of all works. The power conferred upon him to take
decision on the matters enumerated in Clause 30 did not
B involve adjudication of any dispute or lis between the State
Government and the contractor. It would have been extremely
anomalous to appoint him as Arbitrator to decide any dispute
or difference between the parties and pass an award. How
could he pass an award on any of the issues already decided
c by him under Clause 30? Suppose, he was to decline approval
to the designs, drawings etc. or was to object to the quality of
materials etc. and the contractor had a grievance against his
decision, the task of deciding the dispute could not have been
assigned to the Superintending Engineer. He could not be
expected to make adjudication with an un-biased mind. Even
0
if he may not be actually biased, the contractor will always have
a lurking apprehension that his decision will not be free from
bias. Therefore, there is an inherent danger in treating the
Superintending Engineer as an Arbitrator. This facet of the
problem was highlighted in the judgment of the two Judge
E Bench in Bihar State Mineral Development Corporation and
another v. Encon Builders (l)(P) Limited (2003) 7 SCC 418.
In that case, the agreement entered into between the parties
contained a clause that any dispute arising out of the agreement
shall be referred to the Managing Director of the Corporation
F and his decision shall be final and binding on both the parties.
After noticing several precedents, the two Judge Bench
observed:
"There cannot be any doubt whatsoever that an arbitration
G agreement must contain the broad consensus between the
parties that the disputes and differences should be
referred to a domestic tribunal. The said domestic tribunal
must be an impartial one. It is· a well-settled principle of
law that a person cannot be a judge of his own cause. It is
H further well settled that justice should not only be done but
VISHNU (DEAD) BY L.RS. v. STATE OF 363
MAHARASHTRA [G.S. SINGHVI, J.)
manifestly seen to be done. A
Actual bias would lead to an automatic disqualification
where the decision-maker is shown to have an interest in
the outcome of the case. Actual bias denotes an arbitrator
who allows a decision to be influenced by partiality or
8
prejudice and thereby deprives the litigant of the
fundamental right to a fair trial by an impartial tribunal.
As the acts of bias on the part of the St:lcond appellant
arose during execution of the agreement, the question as
to· whether the respondent herein entered into the C
agreement with his eyes wide open or not takes a back
seat. An order which lacks inherent jurisdiction would be
a nullity and, thus, the procedural law of waiver or estoppel
would have no application in such a situation.
D
It will bear repetition to state that the action of the second
appellant itself was in question and, thus, indisputably, he
could not have adjudicated thereupon in terms of the
principle that nobody can be a judge of his own cause."
27. We may now notice the judgments relied upon by the E
learned counsel for the appellant and find out whether the
proposition laid down therein supports his argument that Clause
30 should be treated as an arbitration clause.
28. The facts of Mallikarjun v. Gu/barga University case F
(supra) were that the respondent-University had accepted the
tender submitted by the appellant for construction of an indoor
stadium. In pursuance of the work order issued by the competent
authority, the appellant completed the construction. Thereafter,
he invoked the arbitration clause for resolution of the disputes G
which arose from the execution of the project. Superintending
Engineer, PWD, Gulbarga Circle was entrusted with the task
of deciding the disputes. The parties filed their respective
claims before the Superintending Engineer. He considered the
same and passed an award. The appellant filed execution
H
364 SUPREME COURT REPORTS [2013) 11 S.C.R.
A petition in the Court of Principal Civil Judge (Senior Division).
Gulbarga. The respondent filed an objection petition under
Section 47 of the CPC. The Executing Court rejected the
objection. The University challenged the decision of the
Executing Court and pleaded that the agreement on the basis
B of which the dispute was referred to the Superintending
Engineer was not an arbitration agreement and, as such, award
made by him cannot be treated as one made under the 1940
Act. The High Court accepted the plea of the University and set
aside the order of the trial Court. Clause 30 of the agreement
C which came up for interpretation by this Court was as under:
"The decision of the Superintending Engineer of Gulbarga
Circle for the time being shall be final, conclusive and
binding on all parties to the contract upon all questions
relating to the meaning of the specifications, designs,
D drawings and instructions hereinbefore mentioned and as
to the quality of workmanship or material used on the work,
or as to any other question, claim, right, matter, or thing
whatsoever, in any way arising out of or relating to the
contract designs, drawings, specifications, estimates,
E instructions, orders or those conditions, or otherwise
concerning the works or the execution or failure to execute
1 the same, whether arising during the progress of the work,
or after the completion or abandonment thereof in case of
dispute arising between the contractor and Gulbarga
F University."
After analyzing the aforesaid clause and making a
reference to essential elements of arbitration agreement
enumerated in Bihar State Mineral Development Corporation
G v. Encon Builders (l)(P) Limited (supra), the three Judge Bench
held:
"Applying the aforesaid principle to the present case,
clause 30 requires the Superintending Engineer, Gulbarga
Circle, Gulbarga, to give his decision on any dispute that
H may arise out of the contract. Further, we also find that the
VISHNU (DEAD) BY L.RS. v. STATE OF 365
MAHARASHTRA [G.S. SINGHVI, J.]
agreement postulates present or future differences in A
connection with some contemplated affairs inasmuch as
there also was an agreement between the parties to settle
such difference by a private tribunal, namely, the
Superintending Engineer, Gulbarga Circle, Gulbarga. It
was also agreed between the parties that they would be B
bound by the decision of the Tribunal. The parties were
also ad idem.
In the aforesaid view of the matter, it must be held that the
agreement did contain an arbitration clause."
c
The Bench distinguished the judgment in Bharat Bhushan
Bansal's case by making the following observations:
"A bare comparison of clause 30 of the contract agreement
involved in the present matter and clauses 23 and 24 D
involved in Bharat Bhushan Bansal case would show that
they are not identical. Whereas clause 30 of the agreement
in question provides for resolution of the dispute arising
out of the contract by persons named therein; in terms of
clause 24, there was no question of decision by a named E
person in the dispute raised by the parties to the
agreement. The matters which are specified under clauses
23 and 24 in Bharat Bhushan Bansal case were
necessarily not required to arise out of the contract, but
merely claims arising during performance of the contract.
Clause 30 of the agreement in the present case did
F
provide for resolution of the dispute arising out of the
contract by the Superintending Engineer, Gulbarga Circle,
Gulbarga. For that reason, the case relied upon by the
learned counsel for the respondent is distinguishable.
G
Once clause 30 is constituted to be a valid arbitration
agreement, it would necessarily follow that the decision of
the arbitrator named therein would be rendered only upon
allowing the parties to adduce evidence in support of their
respective claims and counter-claims as also upon hearing H
366 SUPREME COURT REPORTS (2013) 11 S.C.R.
A the parties to the dispute. For the purpose of constituting
the valid arbitration agreement, it is not necessary that the
conditions as regards adduction of evidence by the parties
or giving an opportunity of hearing to them must specifically
be mentioned therein. Such conditions. it is trite, are
B implicit in the decision-making process in the arbitration
proceedings. Compliance with the principles of natural
justice inheres in an arbitration process. They, irrespective
of the fact as to whether recorded specifically in the
arbitration agreement or not are required to be followed.
c Once the principles of natural justice are not complied with,
the award made by the arbitrator would be rendered
invalid. We, therefore, are of the opinion that the arbitration
clause does not necessitate spelling out of a duty on the
part of the arbitrator to hear both parties before deciding
D the question before him. The expression "decision"
subsumes adjudication of the dispute. Here in the instant
case, it will bear repetition to state, that the disputes
between the parties arose out of a contract and in relation
to matters specified therein and, thus, were required to be
.decided and such decisions are not only final and binding
E on the parties, but they are conclusive which clearly spells
out the finality of such decisions as also their ·binding
nature.
A clause which is inserted in a contract agreement for the
F purpose of prevention of dispute will not be an arbitration
agreement. Such a provision has been made in the
~qreement itself by conferring power upon the Engineer-
in-Charge to take a decision thereupon in relation to the
matters envisaged under clauses 31 and 32 of the said
G agreement. Clauses 31 and 32 of the said agreement
provide for a decision of the Engineer-in-Charge in relation
to the matters specified therein. The jurisdiction of the
Engineer-in-Charge in relation to such matters are limited
and they cannot be equated with an arbitration agreement.
H Despite such clauses meant for prevention of dispute
VISHNU (DEAD) BY L.RS. v. STATE OF 367
MAHARASHTRA [G.S. SINGHVI, J.]
arising out of a contract. significantly. clause 30 has been A
inserted in the contract agreement by the parties.
The Superintending Engineer, Gulbarga Circle, Gulbarga,
is an officer of the Public Works Department in the
Government of Karnataka. He is not an officer of the B
University. He did not have any authority or jurisdiction
under the agreement or otherwise either to supervise the
construction works or issue any direction(s) upon the
contractor in relation to the contract job. He might be an
ex officio member of the Building Committee, but thereby C
or by reason thereof, he could not have been given nor in
fact had been given an authority to supervise the contract
job or for that matter issue any direction upon the
contractor as regards performance of the contract."
(emphasis supplied) D
29. In Punjab State v. Dina Nath (supra), the two Judge
Bench was called upon to consider whether clause 4 of work
order No.114 dated 16.5.1985 constituted an arbitration
agreement. The clause in question was as under:
E
"Any dispute arising between the department and the
contractor/society shall be referred to the Superintending
Engineer, Anandpur Sahib, Hydel Circle No.1, Chandigarh
for orders and his decision will be final and acceptable/
binding on both the parties." F
After noticing the judgment in K.K. Modi v. K.N. Modi, the
Court observed:
"Keeping the ingredients as indicated by this Court in G
K.K.Modi in mind for holding a particular agreement as an
arbitration agreement, we now proceed to examine the
aforesaid ingredients in the context of the present case:
(a) Clause 4 of the Work Order categorically states that
the decision of the Superintending engineer shall H
368 SUPREME COURT REPORTS [2013] 11 S.C.R
A be binding on the parties.
(b) The jurisdiction of the Superintending Engineer to
decide the rights of the parties has also been
derived from the consent of the parties to the Work
Order.
B
(c) The agreement contemplates that the
Superintending Engineer shall determine
substantive rights of parties as the clause
encompasses all varieties of disputes that may
c arise between the parties and does not restrict the
jurisdiction of the Superintending Engineer to
specific issues only.
(d) That the agreement of the parties to refer their
D disputes to the decision of the Superintending
Engineer is intended to be enforceable in law as it
is binding in nature.
The words "any dispute" appears in clause 4 of the Work
Order. Therefore, only on the basis of the materials
E produced by the parties in support of their respective
claims a decision can be arrived at in resolving the dispute
between the parties. The use of the words "any dispute"
in clause 4 of the Work order is wide enough to include
all disputes relating to the said Work Order. Therefore,
F when a party raises a dispute for non-payment of money
after completion of the work, which is denied by the other
party, such a dispute would come within the meaning of
"arbitration agreement" between the parties. Clause 4 of
the Work Order also clearly provides that any dispute
G between the department and the contractor shall be
referred to the Superintending Engineer, Hydel Circle No.1,
Chandigarh for orders. The word "orders" would indicate
some expression of opinion, which is to be carried our, or
enforced and which is a conclusion of a body (in this case
H Superintending engineer, Hydel Circle No.1, Chandigarh).
VISHNU (DEAD) BY L.RS. v. STATE OF 369
MAHARASHTRA [G.S. SINGHVI, J.]
Then again the conclusion and decision of the A
Superintending Engineer will be final and binding on both
the parties. This being the position in the present case and
in view of the fact that clause 4 of the Work Order is not
under challenge before us, the decision that would be
arrived at by Superintending Engineer, Hyde! Circle No.1, B
Chandigarh must also be binding on the parties as a result
whereof clause 4 must be held to be a binding arbitration
agreement."
The Bench distinguished the judgment in State of Orissa
v. Damodar Das (supra) by making the following observations: C
"From a plain reading of this clause in Damodar Das it is
evident that the powers of the Public Health Engineer were
essentially to supervise and inspect. His powers were
limited to the questions relating to the meaning of the D
specifications, drawings and instructions: quality of
workmanship or materials used on the work or as to any
other question, claim, right, matter, drawings,
specifications, estimates, instructions, orders or these
conditions or otherwise concerning the works or the E
execution or failure to execute the same. However, in the
case before us, the Superintending Engineer was given
full power to resolve any dispute arising between the
parties which power in our view is wide enough to cover
any nature of dispute raised by the parties. The clause in F
the instant case categorically mentions the word "dispute"
which would be referred to him and states "his decision
would be final and acceptable/binding on both the parties."
30. In our opinion, neither of the judgments relied upon by
Shri Mukherjee help the cause of his client. In Mallikarjun's G
case, this Court noted that Superintending Engineer, Gulbarga
Circle, Gulbarga was not an officer of the University and he did
not have any authority or jurisdiction either to supervise the
construction work or issue any direction to the contractor in
H
370 SUPREME COURT REPORTS [2013] 11 S.C.R.
A relation to the project. The Court also emphasized that the
parties had agreed that any dispute arising from the contract
would be referred to the decision of the Superintending
Engineer. These factors are missing in the instant case.
Likewise, Clause 4 of the work order which came up for
B interpretation in Punjab State v. Dina Nath (supra)
contemplated resolution by the Superintending Engineer of any
dispute arising between the department and the contractor.
Therefore, the relevant clause of the work order was rightly
treated as an Arbitration Agreement.
c 31. In view of the above discussion, we hold that the High
Court had rightly held that Clause 30 of B-1 Agreement is not
an Arbitration Agreement and the trial Court was not right in
appointing the Chief Engineer as an Arbitrator.
D 32. Before concluding, we may observe that circulars
issued by the State Government may provide useful guidance
to the authorities involved in the implementation of the project
but the same are not conclusive of the correct interpretation of
the relevant clauses of the agreement and, in any case, the
E Government's interpretation is not binding on the Courts. ·
33. In the result, the appeals are dismissed.
B.B.B. Appeals dismissed.
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